Energy Market Updates

The NYMEX shot up again today, after trending slightly downward the past several sessions. Last week saw Brent over $65/bbl and today WTI settled out +1.50 to 60.75, over the $60/bbl benchmark we've all been watching for.

ULSD closed up +.0535 to 1.9989, while RBOB shot up over the $2 line again with a gain of +.0529 to settle at 2.0393.

Our friends at OPEC came out earlier this week to announce they saw no increase in oil prices on the horizon, given they see no decrease in production, and denied reports that there was consideration of reinstituting production quotas to boost prices. This pumped the brakes on the rally temporarily, and resulted in a pummeling of energy stocks in the S&P in the process - most notably Exxon and Chevron shares (Both companies saw gains today, however, on the price reversal).

So what happened today?

Most analysts are crediting a weaker dollar in combination with the monthly drilling report that indicates some slow down in shale production domestically. The EIA projected that output from major shale plays will drop by some 86K bpd in June.

Analysts also expect to see draws in crude on tommorows EIA inventories report, which is almost always good for a few cents worth of upward pressure on the market - at least if they are correct, that is.

Outside of drilling and supply concerns, we once again saw resumed airstrikes in Yemen on the same day a cease-fire was to be discussed.

Brent Crude jumped over a dollar at opening this morning, while on the NYMEX, gas and diesel were both up over 4 before 10am. By noon both products surged up well over 5 cents, and products across the board continued to surge upward throughout the day.

At the close, ULSD settled out at 1.9239 (+.0531) and RBOB closed at 1.9956 (+.0711). WTI closed up 1.53 to 57.69.

So what's going on?

The Saudi's resumed airstrikes on target cities in Yemen yesterday, one day after supposed peace talks. Saudi Arabia is again calling on the White House to propose a diplomatic solution to the conflict.

Long story short, the deal in Yemen is that Shiite Houthi rebels have overtaken the Presidential palace, and if they can successfully pull off a coup, there is a very real danger of serious supply disruptions.

About 4% of global oil supply passes through the Bab el-Mandeb strait, which is controlled by the central government in Yemen, according to the EIA.

Traders are closely watching the situation for any indication of a resolution or escalation because of the potential supply implications involved.

Yemen also relies on exporting it's own oil resources, which have declined in volume significantly since 2001 as a result of internal fighting. Their economy relies on oil exports to the tune of 60% of their revenue give or take.

Essentially, not only would a rebel coup in Yemen spike oil prices on transport concerns, but would collapse the Yemeni economy and likely lead to repurcussions and fighting throughout the region.

Stay tuned, and don't forget to fill your car up before the increase hits the pumps!

Today's EIA Inventory report for the week ending April 17th showed a build of 5.5mmb on Crude, but a drop of 2.1mmb on gasoline. Interestingly, even though analysts had projected a mere 2.6mmb build in Crude while the actuals were more than double that, Crude ticked upwards along side RBOB and ULSD initially before settling back down.

Stocks were up across the board basically today as well, on positive economic signs - 71.9% of S&P companies who have reported earnings have reported earnings above analyst expectations. Additionally, housing sector reports indicate a jump in existing home sales of over 6% for March versus February, which is also an 18 month high - a good sign for the economy and also a factor in pushing todays stocks up.

On the negative side, bombing resumed today in Yemen, precisely ONE day after peace talks, which may or may not impact the markets tommorow.

At the close, gas retreated from the intraday high of +.0424 to close out at 1.9245 (+.0364) and ULSD closed up +.0176 to 1.8708, with Crude closing off -0.45 to 56.16.

Today the NYMEX settled out much more reasonably than yesterday, with ULSD finishing off up .0192 to 1.908, and RBOB settled down 6 points to 1.9354.

Yesterday was another story however, with prices shooting up on the lower than anticipated stock levels in this weeks EIA storage report. Crude was up over 3% shortly after the report, a little before 11am. At the close, ULSD ticked up .0871 to 1.8888 and RBOB shot up a solid dime to 1.936.

In addition to the EIA report, there's been more grumblings on production cut backs from OPEC, although as usual the Saudi's are holding firm. The Saudi position is starting to seriously impact US production - hence the lower than anticipated numbers on the EIA's report, and the resultant market freak out.

As of last week the US Crude inventories were at their 80 year high, so the reaction seems somewhat extreme. However, the actual numbers were about 30% of the projected increase so that obviously caused some concern about how hard the impact from another huge OPEC production month really is. Also, once again these events coincide with rumblings from the Fed on economic policy, specifically the interest rate level as well as continued problems in Yemen.

It's been a while, so while the markets closed today, lets take a quick look back at whats been happening (some "light reading for your Friday afternoon)

The economy -

After positive reports in February, the March jobless numbers released today were something of a dissapointment. Only 126K jobs were added, which broke a 12 month streak of 200K+ jobs per month being added. This raises some eyebrows on the state of the economic recovery but some analysts are blaming the extended winter, arguing that the normal pick up in seasonal and construction industry jobs is simply delayed because of the cold.

This lackluster jobs number, however, will once again probably have Wall Street see-sawing over speculations on the Fed interest rates, its probably unlikely to happen soon (I know, deja vu) given the weakness of the report. With the market closed today though we won't see what if any impact this will have until next week.

Commodities and Pricing

This weeks EIA report for the week ending March 27th showed Crude Inventories at record highs for the 12th straight week (+4.8mmb to 471.4mmb). Gasoline dropped 4.3mmb, way over analyst predictions of a less than 1mmb drop. We've seen stronger than expected demand in gasoline, particularly in January and thats sort of underlying its volatility at the moment - if you recall, RBOB jumped .0612 Wednesday on the report, but then pared the gains on Thursday, closing out -.0699 to 1.7613.

The main underlyer on the volatility over the past few weeks is more politically driven - we saw jumps on the NYMEX when it was announced that Saudi Arabia had begun airstrikes on Yemen. Additionally, the Iranian nuclear deal has some traders and speculators on edge, and continuing issues with ISIS and the ongoing strikes against them are keeping Middle East tensions higher than we'd all like to see. Luckily for the most part, days we've seen spikes on international turmoil have usually been reversed with a few days. It's likely this will continue unless there's some real movement or resolution on any of the aforementioned issues. Til then, hold onto your hats and enjoy the ride!